Credit Analysis
The negotiability of foreign drafts is closely related to the credit standing of both drawer and drawee, with greater emphasis usually put on the standing of the drawer. The terms of sale cannot safely be arranged by the American exporter until he has satisfied himself of the importer's standing except, possibly, where a letter of credit is provided; nor can the importer abroad risk making payment in advance unless he is assured of the moral and financial responsibility of the exporter. This problem of credit analysis, ever present in domestic trade, is even more troublesome in foreign trade because of differing customs and language and of the difficulties involved in obtaining financial statements, trade checkings, etc.
Terms of Sale
Knowing the credit standing of the importer and the general foreign exchange conditions and customs in the foreign market and considering his own credit needs, the American exporter is in a position to arrange terms. The importer must decide whether those terms are customary for firms of his reputation and whether the exporter's standing and product warrant such terms. The principal terms extended by American exporters are classified below. Much of the rest of the chapter will be devoted to a discussion of the circumstances under which they will each be used.
1. Sales against cash at point of export and sales against bankers' credits.
2. Sales against authority to purchase.
3. Sales on a dollar and foreign-currency draft basis.
4. Sales on open account.
5. Sales on consignment.
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